MARKET ANALYSIS
The Rally Broadened. The Chip Tape Hasn’t.

Strong earnings are extending Monday’s advance, but the market has not repaired evenly. SPY has cleared its recent range and small caps have recovered trend; QQQ has only reached its first repair level, while semiconductor participation remains poor. The broad market can be owned, but the next increase in technology exposure should wait for better evidence.

US futures are higher again this morning, led by another burst of enthusiasm around artificial intelligence. Palantir raised its annual revenue forecast, ON Semiconductor guided above expectations and Caterpillar reported a sharp increase in quarterly profit. The reaction has been strongest in Nasdaq futures, which were up 0.78% at 6:56 a.m. ET, compared with a 0.2% gain in S&P 500 futures. That follows a Monday session in which the rally reached well beyond the largest technology stocks.

The improvement is real, but incomplete. SPY closed above the resistance that contained it through late July. Mid-caps and small caps recovered their moving averages, and advancing stocks decisively outnumbered decliners. QQQ also moved higher, yet it remains below its 50-day average. The semiconductor ETF SMH is further behind. Today begins with a constructive broad-market setup and an unresolved leadership problem.

Earnings Keep the Bid Alive After Monday’s Breakout

Monday’s rally began with relief over a possible reduction in US-Iran hostilities. Crude fell sharply and the major equity indices rose, with the Dow closing at a record. Iran disputed that formal talks were taking place, however, and oil has already recovered part of that decline this morning. The market is therefore opening without the same clean fall in crude that supported Monday’s move.

Earnings have taken over as the immediate source of demand. Palantir rose 16% before the open after lifting its outlook, while ON Semiconductor gained 7.6% following a stronger revenue forecast. Caterpillar added 7.5% after reporting that second-quarter profit nearly doubled. The results extend the positive tone established by Microsoft and Amazon last week and offer further evidence that corporate spending has not collapsed under higher rates.

The important question is where that demand travels. A strong response confined to a handful of AI-linked stocks would help QQQ without resolving the weakness underneath the semiconductor group. A bid that carries into industrials, financials and smaller companies would strengthen the case that Monday began a broader advance rather than another short-lived rebound.

SPY Broke Out; QQQ Has Only Begun to Repair

SPY gained 1.42% on Monday and closed at 757.67, above the 755.58 ceiling that had capped the recent range. Volume was modestly above its 20-day average. This was a credible break, although not the sort of exceptional turnover that settles the matter in one session.

The level now changes jobs. SPY should hold 755.58 during ordinary intraday weakness if the breakout is healthy. Its 20-day and 50-day averages sit close together near 746, providing the next area of support if price slips back into the old range. A close below that cluster would undo most of Monday’s progress; a controlled hold above the breakout would leave the index positioned to challenge its record.

Nasdaq 100

QQQ rose 1.76% to 700.07 and finished just above its 20-day average. That repairs the nearest piece of technical damage and is a meaningful improvement from last week’s break. It does not restore the medium-term trend: the 50-day average remains near 714.83 but we are seeing a morning star reversal formation taking shape which is a high probability reversal pattern on the weekly charts.

The composition is still awkward. SMH gained less than 1% on Monday and traded on light volume. It remains below both its 20-day and 50-day averages, with the nearer line around 568.69. Software participation, by contrast, is strong. The current technology rally is being carried more convincingly by software and selected AI beneficiaries than by the semiconductor complex that previously led the market.

QQQ holding around 700 keeps the repair alive. A move through its 50-day average would return the index to healthier structure; another failure beneath 700 would show that Monday’s strength was not enough to absorb the supply left by July’s decline.

S&P MidCap 400

MDY closed at 694.09, above both its 20-day and 50-day averages. Nearly two-thirds of MidCap 400 members are also above their 50-day averages, and 288 constituents advanced on Monday against 109 decliners. Price and participation are pointing in the same direction.

Turnover was close to normal rather than emphatic, so mid-caps have not produced a breakout that deserves chasing. They have done something more useful: held together while technology leadership weakened, then participated fully when the market rebounded. MDY remaining above the 687–689 area would preserve that contribution.

Russell 2000

Small caps provided Monday’s clearest evidence that the rally was broad. IWM gained 1.72% and closed at 296.22, back above its 20-day and 50-day averages. Within the Russell 2000, 1,439 stocks advanced and 397 declined. Its equal-weight return exceeded 2%.

The medium-term breadth is respectable rather than exceptional, with about 61% of members above the 50-day average. Short-term momentum also improved sharply after ending last week in negative territory. IWM does not need to lead every session, but it should remain above the 293 area if the market is genuinely moving beyond dependence on its largest companies.

Technology Still Has a Big Hole To Fill

Participation improved across all four major index universes. In the S&P 500, 338 stocks advanced and 161 declined; roughly 64% of constituents are above their 50-day averages. The Nasdaq 100 also finished with more than twice as many advancers as decliners, but only 48.5% of its members remain above the 50-day. The price rebound arrived before a full breadth repair.

The sector picture reinforces that split. Financials have almost 90% of their members above the 50-day, while Health Care and Industrials also retain broad medium-term participation. Technology sits below 45%. Inside the sector, software breadth is strong, but only about one in ten semiconductor stocks is above the 50-day average. Semiconductor equipment is similarly weak.

Monday’s McClellan oscillators turned positive for the S&P 500, Nasdaq 100 and Russell 2000, showing a clear improvement in short-term breadth momentum. Those readings are useful confirmation of the session; they do not erase the longer repair still required in Nasdaq leadership.

There is a credible case that Monday was simply a powerful rebound after a difficult stretch. SPY is only one close beyond resistance, and the strongest lagging industry has not recovered trend. If SPY falls back below 755.58 while MDY and IWM surrender their moving averages, the breakout will look more like a squeeze than a durable expansion. If broader participation holds and semiconductors begin to join it, the market will have repaired the main weakness in the current advance.

Oil Rebounds Before Bonds Confirm the Relief

USO fell 5.46% on Monday as the geopolitical premium in crude contracted. Long-duration Treasuries barely responded: TLT slipped 0.07%, while IEF lost 0.14%. The dollar proxy UUP was unchanged. Equities received substantial relief from oil without receiving a comparable signal from bonds.

Crude is reversing part of that move today. Brent rose more than 2% as Iran denied that negotiations with the United States were under way and shipping through key Gulf routes remained restricted. WTI traded near $82 a barrel during the European morning. The move does not overturn Monday’s equity breakout, but it removes some of the inflation relief that helped the rally begin.

The cross-asset test is straightforward. Equities can tolerate firmer oil if earnings and breadth remain strong. A sustained rise in crude accompanied by higher yields would be harder for the market to absorb, particularly while QQQ and semiconductors remain below their 50-day averages.

What Matters Tuesday

The first decision is whether SPY can keep Monday’s breakout. Holding 755.58 through the close would support continued core exposure to the broad market. A return below that level is a warning; a close back beneath the moving-average cluster near 746 would call for cutting additions made into the rebound.

QQQ has a different task. It needs to remain above its 20-day average near 700 and begin closing the gap to the 50-day near 714.83. Semiconductor exposure deserves a higher bar: SMH should recover its 20-day average and show stronger participation before the group is treated as repaired. Until then, software strength and isolated earnings winners should not be mistaken for a full return of technology leadership.

The June trade balance is released at 8:30 a.m. ET. JOLTS and factory orders follow at 10:00 a.m. The labour data can move yields, but the day’s most direct test of the semiconductor story comes after the close, when AMD reports fiscal second-quarter results.

The market no longer warrants a broadly defensive stance. SPY has broken out, MDY and IWM are above trend, and breadth improved decisively. Keep exposure in areas where price and participation already agree. Avoid using a strong futures open as a reason to chase the lagging chip complex. A wider increase in technology risk becomes easier if QQQ clears its 50-day average and SMH begins to repair; weakness across SPY, mid-caps and small caps would be the signal that Monday’s broad advance failed.